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Singapore and Japan are trading partners. The Japanese economy is operating at full employment, and Japan's current account balance is zero. Assume the exchange rate

Singapore and Japan are trading partners. The Japanese economy is operating at full employment, and Japan's current account balance is zero.

  1. Assume the exchange rate between the Singapore dollar (SGD) and the Japanese yen (JPY) changes from 1 SGD = 82 JPY to 1 SGD = 65 JPY. Does the JPY appreciate or depreciate against the SGD?
  2. Given your answer in part (a), will each of the following increase, decrease, or remain the same?

i. The price of Japanese goods in Singapore dollars

ii. Japan's net exports

  1. Draw a single correctly labeled graph with the long-run Phillips curve and short-run Phillips curve for Japan. On the graph, show the new short-run equilibrium as a result of the change in Japan's net exports from part (b)(ii), labeled point X.
  2. Given your answer in part (b)(ii), will each of the following be in deficit, surplus, or zero for Japan?

i. Current account balance

ii. Financial (capital) account balance

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